It is difficult to imagine that the current economic situation can provide opportunities for companies and business owners. But such opportunities exist, and especially in the following areas:
Acquisitions
Corporate restructuring
Internal purchase
Corporate transition planning
Estate planning
ACQUISITIONS
Since we’ve all heard of (or experienced) the “credit crunch,” you might be wondering, “So how do I consider making acquisitions?” Actually, from a time standpoint, now may be a perfect time to identify acquisition candidates in your industry or a strategic add-on. If your core business is strong, look beyond traditional loan sources. Mezzanine lenders have the same amount of principal today as they did a year ago and are looking for solid loan opportunities. [Mezzanine financing is basically debt capital that gives the lender the right to convert to an ownership or equity interest in the company if the loan is not repaid on time or in full.] Private equity firms have raised a record amount of capital and are seeking investment opportunities in all lines of business. These situations can give you access to capital if you have a strong strategic plan for the future and can communicate it effectively.
CORPORATE RESTRUCTURING
If your company is publicly traded, but you haven’t realized the capital advantage that going public would provide, now would be a good time to evaluate the option of going private. Timing is of the essence and valuations, in most cases, are at an all-time low. It could also save a significant amount of money that you are now paying for compliance (Sarbanes-Oxley). The process of going from public to private involves valuing the company, determining the best structure for conversion (Public Offering or Short Merger), obtaining shareholder approval, and aligning financing.
INTERNAL PURCHASES
If a partner in a company wants to leave, why would he consider leaving now when values are low? There may be several reasons for exiting, such as health or the need to replace lost value in other investments such as real estate or the stock market, or a shareholder may prefer liquidity to property. On the subject of low valuation, most internal transactions are not strictly structured on valuation and can creatively benefit the remaining owner.[s] and the outgoing couple and their long-term family. Creativity, careful management of expectations, and often the presence of objective advisors are key ingredients for a successful internal purchase.
CORPORATE TRANSITION PLANNING
Most business owners don’t like to deal with the business transition they started or grew over the years. However, at some point the transition will occur voluntarily or involuntarily. The best transition plan is voluntary. Because right now? Once again, the question of valuation is at the forefront. Today, most commercial values are at an all-time low, which, when combined with minority and marketability discounts, may make it possible to transfer more significant ownership interests to family members or trusts compared to the recent past. Although the tax-free gift tax “exemption” has remained at $ 1,000,000 per donor, the federal estate tax exclusion has increased from $ 2,000,000 to $ 3,500,000 per person. This is a very large increase and can potentially provide up to $ 7,000,000 of transferred assets tax-free at the time of death. Taking advantage of these changes requires careful planning and perhaps even a realignment of assets between husband and wife.
REAL ESTATE TAXES
Now would be a good time to review your estate planning given some of the changes mentioned above, such as the change in valuation, low interest rates, and the increased exclusion of estate tax. If you haven’t looked at your planning for several years, we highly recommend that you take out your documents and sit down with your planning team to see if there are areas where you can improve your planning. While doing this, you should also evaluate your life insurance to see if there are any cost savings. In recent years, the cost of life insurance has dropped dramatically, and depending on the type of coverage you currently have, you may be able to save a significant amount of money.
The intention of this article was not to make you an expert on all of the above, but to point out that while all the news appears to be bad, there are opportunities. Don’t look at the above ideas as a “single bullet.” There is a cause and an effect, and you need to consider other aspects of your business. We strongly recommend that if you are going to pursue one or two of the ideas presented above, you go through an evaluation process to ensure that you are maximizing the opportunities according to your goals and objectives. .
If you have any questions about the above, contact John Leighbody at The Beringer Group for a free consultation.